Most of the time when the light shows it's in 4 wheel drive. tThe signal comes from the transfer case showing it's engaged. Sounds as if everything is working besides your front solenoid. The switch/solenoid you have found on the 3rd member is the correct 1. Chances are if replaced, you will have 4 x 4 operation again. But again check to make sure you have current to the plug end when in 4by mode. If so replacing your solenoid should be the only thing you'll need to fix.